The ratio at which a country can trade its exports for imports from other countries is
called comparative advantage.
In a market with positive externalities, the market equilibrium price will be greater than
the efficient equilibrium price.
“Cost disease” refers to the tendency for high productivity in the service sector to lead
to lower costs in those industries.
If consumers believe the price of hybrid vehicles will decrease in the future, this will
cause the demand for hybrid vehicles to decrease now.
“The distribution of income should be determined by the government” is an example of
a normative economic statement.
Lowering the individual income tax will increase household disposable income and
consumption spending.
Human capital refers to the percentage of the working-age population in the labor force.
An adverse supply shock causes the short-run aggregate supply curve to shift left,
increasing the price level.
If net exports are positive for China, it must be true that China is experiencing net
outflows of capital.
Fed Chairman Alan Greenspan managed to keep the rate of inflation low as the
economy was growing at a brisk pace by setting and hitting low money supply growth
rate targets.
What can the Federal Reserve do to reduce the natural rate of unemployment?
A) nothing
B) follow expansionary monetary policy that will increase inflation
C) follow expansionary monetary policy that will reduce inflation
D) follow contractionary monetary policy that will increase inflation
Investment, as defined by economists, would not include which of the following? Ford
A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.
On the long-run aggregate supply curve,
A) a decrease in the price level decreases the level of potential GDP.
B) a decrease in the price level increases the aggregate quantity of GDP supplied.
C) a decrease in the price level decreases the aggregate quantity of GDP supplied.
D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI
over that year rises from 180 to 200. What is the real interest rate you are paying?
A) 15%
B) 5%
C) -1.1%
D) -6.1%
Which of the following is the best example of a quota?
A) a subsidy from the U.S. government to domestic manufacturers of residential air
conditioners to enable them to compete more effectively with foreign producers
B) a limit on the quantity of residential air conditioners that can be imported from a
foreign country
C) a $150 fee imposed on all imported residential air conditioners
D) a tax placed on all residential air conditioners sold in the domestic market to help
offset the impact of emissions on the environment
How will an interest rate increase in the United States affect equilibrium in the market
for dollars against foreign currencies? (Assume the exchange rate is stated in terms of
foreign currency per U.S. dollar.)
A) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars
traded cannot be determined.
B) The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars
traded cannot be determined.
C) The equilibrium exchange rate cannot be determined, and the equilibrium quantity of
dollars traded will increase.
D) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars
traded will increase.
Comparative advantage means
A) the ability to produce more of a product with the same amount of resources than any
other producer.
B) the ability to produce a good or service at a lower opportunity cost than any other
producer.
C) the ability to produce a good or service at a higher opportunity cost than any other
producer.
D) compared to others you are better at producing a product.
A decrease in Social Security payments will
A) decrease consumption spending.
B) decrease investment spending.
C) decrease government spending.
D) decrease export spending.
If the economy is currently in equilibrium at a level of GDP that is above potential
GDP, which of the following would move the economy back to potential GDP?
A) a decrease in wealth
B) a decrease in interest rates
C) an increase in business confidence
D) a decrease in the value of the dollar relative to other currencies
Which of the following would cause a decrease in the supply of peanut butter?
A) a decrease in the price of jelly (assuming that peanut butter and jelly are
complements)
B) a decrease in the price of peanut butter
C) an increase the price of peanuts
D) an increase in the technology used to produce peanut butter
Before the Great Depression of the 1930s, the majority of government spending took
place at the ________ and after the Great Depression the majority of government
spending took place at the ________.
A) state and local levels; federal level
B) local level; federal level
C) federal level; state and local levels
D) federal level; state level
If the GDP deflator in the United States is 114, and the GDP deflator in Ukraine is 142,
which of the following changes would the theory of purchasing power parity predict?
(The Ukrainian currency is the hryvnia.)
A) The demand for the dollar will rise since the dollar is undervalued.
B) The demand for the dollar will fall since the dollar is overvalued.
C) The supply of the dollar will fall since the dollar is undervalued.
D) No prediction regarding changes in the demand or supply of the dollar can be made
without information on the exchange rate between the United States and Ukraine.
Since 1950, the average length of a recession in the United States has been
A) such that recessions barely exist.
B) less than a year.
C) between 1 and 2 years.
D) greater than 2 years.
What is the central role of financial intermediaries in a market economy?
A) the creation and printing of money
B) keeping the price level stable
C) bringing together savers and borrowers
D) providing safe deposit boxes for people and businesses
If the Fed’s policy is contractionary, it will
A) use open market operations to buy Treasury bills.
B) use open market operations to sell Treasury bills.
C) lower the discount rate.
D) lower the reserve requirement.
If a stock’s dividend is expected to grow at a constant rate of 6 percent in the future and
it has just paid a dividend of $3.00 per share, and you have an alternative investment of
equal risk that will earn a 9 percent rate of return, what would you be willing to pay per
share for this stock?
A) $9
B) $20
C) $45
D) $106
The advice to “retrain” would be most appropriate for which of the following types of
unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) core unemployment
Trade-offs force society to make choices when answering what three fundamental
questions?
Is knowledge capital subject to the law of diminishing returns? Explain.
What causes a production possibilities frontier to shift inward?
If Congress and the president pursue an expansionary fiscal policy at the same time as
the Federal Reserve pursues an expansionary monetary policy, how might the
expansionary monetary policy affect the extent of crowding out in the short run?
If you own a bond with a seven percent coupon rate and new bonds are paying five
percent, what will happen to your bond’s market price?
Ceteris paribus, how does an expansion in the United States affect U.S. net exports?